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SHOULD I CONSIDER LEASING A NEW COACH? |
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Every
funeral home I’ve ever encountered charges for the use of their coach…
generally anywhere from $200.00 to $350.00 for the service.
This charge is either itemized or included in the funeral package.
To clarify whether or not leasing is best for you lets first assume that
the monies designated and charged for the use of the funeral coach are
actually paying for the coach. In
other words, are service fees covering the service, and are coach fees
covering the coach? If
in fact the charges for the coach are paying for the coach, the vehicle
should earn a profit; just like the casket you retail should earn a
profit. If your services
require the use of a coach ten times a month or more, and you are charging
the amount mentioned above, you should definitely consider leasing a new
coach. Many
of you may say… “I've always owned outright…” or “I pay cash for
my own coach”. However, like
anything else, businesses are evolving.
With the advent of local warehouses and efficient delivery, many
funeral homes are increasing their cash flow by decreasing their casket
inventory and implementing more cost effective merchandising and display. The
primary function of leasing equipment is to regulate and control CASH
FLOW. Leasing requires
less (initial) money out of pocket and has lower payments per month versus
traditional financing. In
essence you are only paying for that portion of vehicle you are using…
and your sales tax is paid along with that portion.
You can see how this scenario can make it easy to monitor and
manage your monthly costs and profit regarding your coach/limousine.
Another major benefit with leasing is that the payments are tax
deductible for the full term. So
what about the residual or balloon payment?
Leasing companies that specialize in the funeral industry will
normally allow a residual of around $26,000.00 for your new coach on a
five-year lease. Equipment
depreciates, but in this case it also generates income.
Your new coach will not depreciate to $0.00 or be worthless in five
years. A quality coach will be
worth approximately $35,000.00 at lease end.
Again, to control cash flow, why heap this unused value into your
payments? Your families are
only paying for the portion or time they use the vehicle.
Why shouldn’t you do the same thing?
Basically, your coach generates income… why tie up your money
when you can use someone else’s money to generate profits? There
are basically two types of leases, “Open End” and “Closed End”
which will determine what you will or will not pay at lease end.
On an “open end” lease you pay the residual and own the car
outright at lease end. This
can be beneficial when your caseload requires an extra vehicle.
This way you keep two coaches on hand and sell off the oldest one
every 5 years. The value of your oldest coach can be used towards
the residual on the newer one coming off lease. With strategic
planning you can maintain a quality image and prevent winding up with
outdated or worthless equipment. On
a “Closed End” lease you walk away from the vehicle at lease end.
There will be enough value in your coach for your dealer to roll
you into a new vehicle, pay all your inception costs; all without any
money coming out of your pocket.
This can be extremely beneficial when considering you can maintain
an effective cash flow and always provide your clients with a new model
vehicle. Not to mention new
car warranty… and your funeral coach is second only to your building as
a visual icon of the level and quality of the service you offer. Remember,
ultimately your families will be making your payment including a portion
of profit for you. Leasing
today is very flexible. Lets
say you want the tax advantages of leasing but don’t want a balloon
payment. You can lease your
vehicle with a $1,000.00 residual. Also,
regarding your credit profile;
leasing will will only show as a operating expense, not as a debt as in traditional financing. You’ll
have more credit worthiness to purchase one of those corporate funeral
homes being liquated!
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